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4 Indian Diamond Industry – Problems and Prospects
PREFACE
Women are main consumers of diamond. However, they are
unable to understand the right source of buying diamond and the
right kind of diamond to be purchased. The flaws in a diamond
cannot be seen with the naked eye. Gold is the preferable metal for
investment. People do not consider diamonds as an investment. This
book will show that diamonds are a good investment. It will also be a
guide to the consumers in making a right choice of diamond. I am
grateful to Dr. R.R. Khan for being my guide and helping
me in completing my research work on diamond trade of India.
Author
Introduction 5
CONTENTS
1. Introduction 1 – 16
Chapter 1 Introduction
1. Introduction
1. Introduction
Trade is the transfer of ownership of goods and services from
one person or entity to another by getting something in exchange
from the buyer.
In prehistoric times, trade was in crude form with goods being
exchanged for goods. This was known as barter exchange. Barter
exchange suffered from a number of drawbacks. Some of these
drawbacks were double coincidence of wants, indivisibility of certain
goods, absence of common measure of value and difficulty in storage
of wealth. Money in the form of precious stones and metals were
initially used as a medium of exchange to solve these problems.
Later, the evolution of metallic money gave boost to trade and
commerce within as well outside the frontiers of nations.
(A) Trade History of India
India is looked upon as a country with immense resources
available through its length and breadth. India was famed for her
fabulous wealth ever since the ancient times till the establishment of
the British Empire. Indian trade history reflects that despite the
frequent political upheavals during the 12th to the 16th centuries, the
country was still prosperous. The political and economic policies
followed by the Muslim rulers propagated the growth of towns in
various parts of the country. These towns grew into trade and
industrial centres, which in turn led to the general prosperity in the
nation. From the 16th to the 18th centuries, covering the two hundred
years of Mughal rule, Indian urbanization saw further growth.
Descriptions of the wide variety of excellent goods sold in the
Indian markets of those days are found in the records of foreign
travellers. India was well known for its textiles, one of the chief
items of export. Trade history of India also shows that hardwood
furniture, embellished with inlay work, was a very
popular item for export. Although, the expensive carvings and
inlays were inspired by the ornate Mughal style, the furniture was
modelled on the European design. Carpets were used both in ancient
and medieval India. But the skill of carpet weaving touched new
heights only during the Mughal era in the 16th century. A larger
variety of ornamental work in cut stones, ivory, pearl and tortoise
shells were produced in South India. Pearl fishing was a major
industry here. Indian arts and crafts patronized by Indian rulers, were
8 Indian Diamond Industry – Problems and Prospects
unmatched for their beauty and skill and were very popular in the
European countries.
History of Indian trade has extensive accounts about domestic
trade in medieval India by the foreign travellers. With Delhi as a
major trade centre, well-maintained roads linking various parts of the
country, facilitated domestic trade on large scale. River routes also
promoted internal trade between different parts of the country.
Different communities were known to dominate trade in various
parts of the country. India’s exports were reported to be far more
than her imports during this period, both in the number of items as
well as in volume. Arab traders shipped Indian goods to European
countries through the Red Sea and the Mediterranean ports. Foreign
trade was in the hands of both local and foreign merchants, as
revealed by the Indian trade history. With huge earnings from her
exports of various commodities, the state coffers were amply stocked
with gold and silver.
However, the dramatic change in the political conditions in
India during the 18th century brought about a drastic change in the
situation. This period was marked by decline of the Mughal Power
and the rise of the British power which dealt a fatal blow to the
prosperity of the country. The British imposed heavy duties on both
imports and exports in order to disrupt the foreign trade relations of
India with the other countries.
By the time India gained Independence from the British in 1947,
the economy was completely dependent on foreign sources for the
supply of its most of the requirements. There were hardly any
manufacturing facilities to suffice the needs of the growing Indian
population. The past couple of decades in the history of Indian Trade
have seen the country struggle to create manufacturing capacities
across the board to be self-sufficient. The government has been
focusing on the broad-based developments to move the economy
from an underdeveloped status to being a developed nation.
India today stands at a over a trillion economy. Darjeeling tea,
Indian khadi, cotton, Bombay Duck, Kashmiri carpets, Surti
diamonds, Indian spices and dry fruit are just a few of the famous
gifts India has given to the world. The economic levels have
improved in the urban and semi-urban areas. Literacy is penetrating
deep in to even the far reach areas, thus creating awareness and to
higher consumption patterns for all kinds of goods across all sections
Introduction 9
of the society. Promoting the availability of goods from different
parts of the world has seen a rise in more trade with other countries.
Indian trade history is remarkable. Indian trade has benefited
India and so has the world.
(B) Diamond Trade of India
The significance of the gems and Jewellery industry in the
Indian economic scenario is a development of the last three or four
decades. In 1960-61, the export turnover of the Gems and Jewellery
industry constituted just 0.2% of the total exports from India which
rose to 16.6% in the year 2000-2001 and marginally fell to 14.9% of
total exports in the year 2010-2011.1 The Gems and Jewellery sector,
today, is one of the leading export oriented industries in India
recording an export turnover of around ` 875 bn. during 2010-2011
and contributing 15 per cent of total exports, making it a significant
foreign exchange earner for the country.2
The gems and jewellery industry occupies an important position
in the Indian Economy. It is a leading foreign exchange earner and
also one of the fastest growing industries in the country. The two
major segments of the sector in India are gold jewellery and
diamonds. Gold jewellers form around 80 per cent of the Indian
jewellery market, with the balance comprising fabricated studded
jewellery that includes diamond studded as well as gemstone studded
jewellery. A predominant portion of gold jewellery manufactured in
India is consumed in the domestic market. In diamonds, however, a
major portion of rough, uncut diamonds processed in India is
exported, either in the form of polished diamonds or finished
diamond jewellery. Besides being the largest consumer of gold, India
is also the leading diamond cutting nation in the world.
Diamonds have been parts of the Indian civilization since its
recorded history. Diamonds were discovered in India during the 4th
century B.C., and India was one of the first countries to mine the
gem. India's diamonds were prized for their size and beauty for
hundreds of years. Some of India's most prized diamonds are known
as the ‘diamonds of Golconda’ and the most famous Indian stones
1 Compiled from the Annual Reports of the Gems and Jewellery Export
Promotion Council (GJEPC).
2 Compiled from the various issues of the Economic Survey of India,
Government of India.
10 Indian Diamond Industry – Problems and Prospects
include the Hope Diamond, the Koh-i-Noor Diamond, the Orlov
Diamond, and the Sanc Diamond. The Darya-i-Nur (Sea of Light)
diamond weighed 186 carats and was owned by the Nadir Shah of
Persia after it was plundered from India. Some of the centres of
diamond mining in India are Panna in Madhya Pradesh and Krishna
valley, Anatpur and Cudapah in Andhra Pradesh. But most of these
mines are defunct now.
Diamond cut and polished in India has global recognition and
India has emerged as a largest diamond cutting centre in the world.
India is the world's largest diamond processing (cutting and polishing)
country with around 1 million processors treating over 57 % of the
world's rough diamonds by worth. Diamonds processed in India
account for 57% share in terms of value, 80% in terms of cartage and
90% in volume, of the total world market. 94% of global workers
involved in diamond industry are in India. 3 Processing is done on
rough diamonds in a complete range of sizes and qualities, including
stones larger than 10 carats. In terms of carat, India's contribution in
this sector is about 80 % of the global market. The main diamond
cutting and polishing centres in India are located at Mumbai, Surat,
Ahmedabad, Bhavnagar and some small towns in Gujarat.
Indian diamond trade mainly consists of import of rough
diamonds for the purpose of cutting and polishing. Nine out of ten
diamonds are cut and polished in the world are processed in India.
Diamond trade also includes export of cut and polished diamonds
and diamond studded jewellery from India. Indian diamond industry
is largely family owned. Earlier, it was scattered in cottage industry
format but now it has emerged as a modern mechanised industry
using highly advanced and automated technology. Almost 96% of
the business in the sector is unorganised and family owned while the
remaining 4% is in the organised sector. India is the first country to
mine diamonds, cut and shape them and export them to other
countries of the world. The cutting and polishing of diamonds and
other precious stones is one of the oldest traditions of India.
In gems and jewellery sector, India seems to have earned a
considerable reputation both in domestic as well as international
markets for its skills and creativity. In the global diamonds market
today, Indian diamonds account for 60 per cent share in terms of
13 Patodi Avi, Joshi Nishant and Sharma R.K. (2012), “Robustness Exploration
of Diamond Exports from India: A Descriptive Study”, 2nd International
Conference on Humanities, Geography and Economics (ICHGE'2012)
Singapore April 28-29.
18 Indian Diamond Industry – Problems and Prospects
to be robust at 6 percent. They have raised a concern that the Indian
diamond market is not on firm grounds. The bottom of the markets is
deep and with fluctuations in USD the markets can take a complete
U-turn. They have also predicted that the prevailing business
environment in specific to diamond export industry is extremely
competitive. The Industry needs to gear up to new competitors in
form of China and Thailand. It is important that we develop the more
gems and jewellery training institutes in the country. Our SEZ
infrastructure specially dedicated to gems and jewellery sector has
still not seen the light of the day which appears to be a big issue. In a
nut shell the future of diamond exports is rough and our supremacy
may soon be challenged.
14
Indian Economic and Business News Bulletin (2010), From the Commercial
Wing of Indian Embassy in Israel, March.
15 Director’s Report (2011-2012), “Mini diamonds (India) Ltd., April.
20 Indian Diamond Industry – Problems and Prospects
reasons being booming economics of India and China, accompanied
by a steady rise in per-capita jewellery consumption. The increased
demand for diamond jewellery in China and India are influenced by:
● Rising wages, which are causing a steady growth in the size
of the well-to-do middle class;
● Government policies that encourage consumption.
India and China import billions of dollars of gold a year - 49%
of the overall worldwide consumption of gold, which in 2011 was
about 4,067 tons in volume and 205.5 billion dollars in value, and
55% of the consumption of gold for jewellery. India remained the
world's largest consumer of gold - 933.4 tons in 2011 (of which 500
tons were for gold jewellery), a remarkable figure considering the
sensitivity of gold prices and the weakening of the rupee compared
with the dollar in the second half of the year. The demand in China,
the world's second largest consumer of gold (769.8 tons), increased
this year by 20%. In the second half of 2011, China became the
largest jewellery market in the world.
4. Competition from China: China is rapidly gaining ground
in the diamond trade, unsettling many Indian diamond traders. The
Chinese government has struck multi-billion dollar deals with
various African countries, to build their infrastructure in return for
resources including rough diamonds. With growing domestic
demand, China is building its diamond cutting and polishing
infrastructure. In exchange for medicines, oils, industrial metals and
delivery of infrastructure projects, China is importing rough
diamonds from Angola, the Democratic Republic of Congo and other
African countries. All these initiatives on the part of China are
posing threat to Indian diamond market.
The Indian government is holding talks with diamond producing
states around the world to secure supplies of rough diamonds. In this
regard, the Indian government is talking to Russia, Canada,
Zimbabwe and South Africa for rough diamond supplies and is keen
to ink long term contracts for assured supplies. India is the world's
biggest diamond manufacturing hub and the Indian government
recently led a delegation to South Africa and Russia in a bid to
secure a supply of roughs.
Russian company Alrosa has signed long term contracts with
five top diamond companies in the country.
Narendra Modi, the Chief Minister of Gujarat, has advised
diamonds traders in Gujarat to look beyond processing diamonds. He
Introduction 21
said India’s share of the international jewellery market stood at some
US$ 491 million, though it had a potential to cross US$ 909 million.
India is also comfortably placed against its competitors in terms
of cost of production. India boasts of one of the lowest per carat
diamond cutting and polishing costs (at around US$ 10) thereby
leading to comparatively low cost jewellery, and hence amplifying
the overall consumption. Additionally, growing importance of India
in the global gems and jewellery market has opened a lot of
opportunities for exports. The country is rapidly becoming a major
exporter of gems and jewellery to various developed and developing
countries, including the US, the UAE, Hong Kong and Belgium. The
Indian gems and jewellery exports sustained its positive momentum
even in the times of recession.
Currently the Indian gems and jewellery market remains highly
fragmented, but is rapidly transforming into an organized sector.
Additionally, apart from diamond jewellery, gold consumption is
also on a rise and India is expected to capture a dominant share in
global gold consumption in 2013.
Going ahead, the organized jewellery sector is expected to
account for a significant share in country's total jewellery market.
____